Securities Lawyers Blog

Ronald Anglin Investigated by the SEC Over Charges of Securities Fraud

January 15, 2014 | by Staff Attorney

The Securities and Exchange Commission (SEC) instituted administrative proceedings against broker Ronald Gene Anglin (Anglin), formerly of Merrill Lynch, Pierce, Fenner & Smith Inc. (Merrill Lynch), on allegations that Anglin engaged in securities fraud by forging letters of authorization from a Merrill Lynch customer to be sent by mail to addresses designated by Anglin.

From 2004 through October 2008, Anglin was a registered representative of Citigroup Global Markets, Inc. Thereafter, Anglin was a registered representative of dually registered broker-dealer and investment adviser Merrill Lynch until May 2011. Anglin also was an investment adviser representative for Merrill Lynch. Anglin is 38 years old and is a resident of Canyon Country, California.

On October 4, 2012, Anglin pleaded guilty to one count of mail fraud before the United States District Court for the Central District of California in U.S. v. Ronald Gene Anglin, 2:12-CR-00232-SJO. On March 25, 2013, Anglin was sentenced to three years of probation including 27 months in home detention, and ordered to make restitution in the amount of $73,000.

Mary Faher of WR Rice Suspended By FINRA Over Private Placement Sales

January 14, 2014 | by Staff Attorney

Broker Mary A. Faher (Faher) was suspended and fined by The Financial Industry Regulatory Authority (FINRA) over allegations that Faher made unsuitable recommendations to her clients to invest in private placements.

Between February 2011, and November 2012, Faher was registered with WR Rice Financial Services, Inc. (WR Rice). Previously, Faher was registered with Fifth Third Securities, Inc. from March 2004 through February 2011. According to Faher’s BrokerCheck, on September 26, 2013, the state of Michigan permanently barred Faher from registration in Michigan and fined her $4,000 in connection with the sales of limited partnership securities.

FINRA alleged that between August 2011, and February 2012, Faher recommended that her customers invest in various limited partnership interests resulting in an overconcentration in the customer’s accounts in speculative securities. The limited partnerships were interests in The Diversified Group Land Contract Limited Partnerships 1-17 (Diversified LPs) that were offered by The Diversified Group Partnership Management, LLC (Diversified Group). The Diversified Group was a contracting company that purchased and rehabilitated real estate. The Diversified LP shares stated purpose was to use investor funds to purchase servicing land contracts on residential real estate. The land contracts promised investors an annual interest rate of 9.9%, with a total return of 10.44%. The Diversified Group planned to collect payments on the land contracts from the homes’ inhabitants and pay investors. The offering memoranda for the Diversified LPs stated that the investments were speculative in nature, illiquid, non-transferable, subject to default risk, and adverse market conditions.

FINRA Panel Awards Customer in A Claim Over the Erickson Retirement Communities Private Placement

January 13, 2014 | by Staff Attorney

Wisconsin based B.C. Ziegler & Co. (Ziegler) was recently hit with a $311,000 judgment in a decision made by a FINRA arbitration panel. The claimant alleged negligent misrepresentation, suitability, negligence, failure to supervise, and violation of Wisconsin Uniform Securities Act. The claim related to the recommendation to purchase private placement securities in the Subordinated Taxable Adjustable Mezzanine Put Securities (STAMPS) offered by Erickson Retirement Communities, LLC (Erickson).

The claimant alleged that less than two years after its investment, Erickson filed for bankruptcy and the STAMPS investment became worthless. The claimant alleged that Ziegler failed to disclose material facts regarding the STAMPS investment and that the STAMPS recommendation was at odds with the claimant’s investment objectives. The claimant alleged that STAMPS was an illiquid subordinated debt products, not secured by any collateral, and was recommended to the claimant at a time when private and commercial loan environments were experiencing extreme stresses. Further, the claimant alleged that they were recommended the investment even though Erickson’s financial situation was steadily worsening.

Other complaints filed against Ziegler in connection with the Erickson private placement have made similar allegations against the firm. According to a Chicago Tribune article, claimants have alleged that their broker promised returns of 11 percent to 12 percent but minimized or failed to disclose the risks, including how their cash would be tied up for years. Due to stock market volatility, broker promises of fixed returns from a stable investment often entice clients to follow their broker’s recommendation to invest in private placements. In addition, private placements are supposed to be sold to only accredited investors who meet certain net worth or income requirements. Some of the investors have claimed that they were instructed to provide incorrect financial information in order to meet the accredited investor standard, a claim that has become more and more common as brokerage firms seek to sell private placements to a wider field of investors.

Paul Thomas of Lincoln Financial Suspended By FINRA Over Penny Stock Trades

January 10, 2014 | by Staff Attorney

Broker Paul A. Thomas (Thomas) formerly with Lincoln Financial Advisors Corp. (Lincoln Financial) was suspended by The Financial Industry Regulatory Authority (FINRA) over allegations that Thomas engaged in unauthorized and/or improper discretionary penny stock trading, engaged in unsuitable penny stock trading, and mismarked the trade tickets for penny stock transactions as unsolicited, when they were solicited trades.

Thomas has been in the securities industry since 2000 and was employed by Lincoln Financial as a registered representative through his termination on October 14, 2011. Thomas has approximately 15 customer disputes filed against him. The vast majority of these disputes involve allegations concerning improper penny stock trading.

A “penny stock” is a security issued by a small or micro-cap company having less than $100 million in market capitalization. Penny stocks typically trade at less than $5 per share and are generally quoted on over-the-counter exchanges such as on the OTC Bulletin Board. The risks of penny stocks include the fact that they may trade infrequently. Thus, it is often difficult to liquidate a penny stock holding once acquired and at the time the investor wants to. Second, it is often difficult to find accurate quotes for penny stocks. Consequently, penny stocks often fluctuate wildly day-to-day and investors may lose their whole investment.

Will Puerto Rico Municipal Bonds Default?

January 9, 2014 | by Staff Attorney

This question is on the minds of many investors. Many clients and potential clients have contacted our firm concerned about the effect of a default on their UBS Puerto Rico municipal bond funds that are heavily invested in the island’s debt

The UBS Puerto Rico bond funds, including the Puerto Rico Fixed Income Fund and the Puerto Rico Investors Tax-Free Fund series, invested up to 140% in Puerto Rico debt through the employment of leverage. The extreme use of leverage has exacerbated recent declines. As losses continue to increase clients tell us very similar stories about how their brokers recommended that they invest as much as 100% of their portfolios in the UBS Puerto Rico closed-end funds.

Now our clients worry about a potential Puerto Rico default on its municipal debt. Puerto Rico’s public debt of $53 billion is nearly $15,000 per person. When you add on the severely under-funded pension and healthcare obligations, the amount of debt approaches $160 billion, or $46,000 per person.

Securities Broker Christopher Orlando Suspended Over Sale of Diversified Lending Group Promissory Notes

January 8, 2014 | by Staff Attorney

Broker Christopher Orlando (Orlando) was suspended and fined by The Financial Industry Regulatory Authority (FINRA) over allegations that Orlando participated in the sale of approximately $7,000,000 in private securities transactions of promissory notes linked to Diversified Lending Group (DLG) that were not made through his member firm PlanMember Securities Corporation (PlanMember).

FINRA alleged that between March 2007, and July 2008 Orlando marketed Secured Investment Notes in DLG (DLG Notes). According to Orlando’s public disclosures, the DLG notes were supposed to invest funds in distressed real estate and mortgage lending. Investors who filed complaints against Orlando and the brokerage firms that employed him have alleged that in reality the DLG Notes were Ponzi scheme type fraud.

Orlando marketed the DLG Notes to insurance agents and financial advisors who in tum sold the DLG Notes to investors. FINRA alleged that Orlando met with his marketing agents and provided them with information and materials about DLG Notes. In addition, Orlando referred at least eight insurance agents to DLG for training so that they would sell DLG Notes to investors. According to FINRA, Orlando was also directly involved in marketing the DLG Notes to potential investors by speaking at seminars about them.

FINRA Bars LPL Financial Broker for Falsifying Documents

January 7, 2014 | by Staff Attorney

On December 13, 2013, Financial Industry Regulatory Authority Inc. (FINRA) barred Gary Chackman after he allegedly falsified company documents to evade procedures and protocol, which caused an overconcentration of customer’s investments in alternative assets. Chackman evaded the firm’s supervision and inaccurately completed investor documents. LPL Financial Inc., Chackman’s employer at the time of the incident, denies any involvement in Chackman’s illegal activity.

Although Chackman neither admitted nor denied FINRA’s findings, he consented to the described sanction; therefore FINRA barred him as a member of the association. Although there are numerous complaints and investigations pending before FINRA, the association rarely bars brokers. Only one other broker was barred this year due to misrepresentations in the sale of an investment product.

Not only did Chackman allegedly misrepresent the financial transaction to the firm, but also failed to disclose the high-risk nature of alternative investment to his clients. The investor’s liquid net worth was misidentified on purchase forms when acquiring Real Estate Investment Trusts (REITs) and alternative investments. By misrepresenting client information on the purchase forms, the client’s purported liquid net worth remained below the firm’s limitation. Therefore, the REITs became highly concentrated in illiquid alterative investments.

James Busch of Wells Fargo Advisors Barred Over Allegations of Misappropriating $1.3 Million from Customers

January 6, 2014 | by Staff Attorney

Broker James Arnold Busch (“Busch”) was barred from the broker industry by The Financial Industry Regulatory Authority (FINRA) over allegations that Busch engaged in securities fraud by misappropriating customer funds from approximately 8 different clients’ bank accounts. FINRA alleged that most of Busch’s victims were elderly women.

In 1989, Busch first became registered with FINRA as a Series 6 (Investment Company Products/Variable Contracts Limited Representative). In 1992, Busch became licensed as a Series 7 (General Securities Representative). In 2000, Busch became registered with Wells Fargo Advisors, LLC (“Wells Fargo”) where Busch remained working out of various Georgia branch office locations until his termination in October 2013.

FINRA alleged that Busch worked in various branch offices of Wells Fargo that were also located in the firm’s affiliated bank. Many of Busch’s customers had both Wells Fargo brokerage accounts and Wells Fargo bank accounts. FINRA found that Busch had access to his customers’ bank account information through his relationship to the customers’ brokerage account. From 2006 to 2013, Busch used his customers’ bank account information to misappropriate approximately $1.3 million from approximately eight of his Wells Fargo brokerage customers. FINRA alleged that Busch took advantage of mostly elderly women.

Saxony Securities Fined by Securities Regulator Over Sale of Nontraditional ETFs

January 3, 2014 | by Staff Attorney

Broker-dealer Saxony Securities, Inc. (“Saxony”) was recently fined $15,000 over allegations by The Financial Industry Regulatory Authority (FINRA), the regulator of securities broker-dealers, that Saxony failed to establish and maintain a supervisory system, including written procedures, regarding the sale of leveraged or inverse exchange-traded ETFs that was reasonably designed to achieve compliance with the FINRA rules.

Saxony has been registered with FINRA since 2002. Saxony has its main offices in St. Louis, Missouri and employs approximately 100 registered representatives at the firm’s 50 branch offices.

Nontraditional ETFs are designed to return a multiple of some underlying index or benchmark such as the Dow Jones, S&P 500, or other targeted index. Some nontraditional ETFs return the inverse of that benchmark or index. These nontraditional ETFs are supposed to be held only for a one trading session – usually a single day. As a result, the performance of nontraditional ETFs over periods of time longer than a single trading session can be significantly different from the performance of their underlying index or benchmark. Accordingly, Nontraditional ETFs are inherently risky and complex products. FINRA has advised brokerage firms that nontraditional ETFs are typically not suitable for retail investors who plan to hold them for more than one trading session, particularly in volatile markets.

Paul Renard of SII Investments Suspended Over Unsuitable Sales of Nontraditional ETFs

January 2, 2014 | by Staff Attorney

Paul Renard (Renard) a broker with SII Investments, Inc. (SII) was recently suspended for two years and fined $60,000 by The Financial Industry Regulatory Authority (FINRA) over allegations that Renard: (1) recommended that at least four customers buy and hold nontraditional ETFs without having reasonable grounds for believing that the recommended investments were suitable for those customers; (2) distributed at least nine independently prepared reprints to customers without Ameriprise’s review and approval; (3) used a personal email account, which Ameriprise did not monitor, to distribute the materials; and (4) failed to disclose two tax liens filed against him by the State of Wisconsin. In addition, at least 21 customer complaints have been filed against Renard.

Renard was previously a registered representative of Ameriprise Financial Services, Inc (Ameriprise) from August 21, 2009, until June 22, 2011, when Ameriprise terminated his registration alleging that Renard failed to comply with company policies by soliciting prohibited securities, use of external email account, and failed to properly update his disclosures. Prior to Ameriprise Renard was registered with Securities America, Inc. from November 2009 through May 2011. Renard’s BrokerCheck discloses that he is also the president of First Tee of Green Bay, a managing director of Reedsville Granary LLC, and employed with PDI Financial.

FINRA alleged that Ameriprise implemented a policy prohibiting its representatives from recommending or soliciting nontraditional ETFs. Under the policy, customers could hold existing nontraditional ETF positions but any new purchases could only occur on an unsolicited basis. On September 2, 2009, Renard entered a solicited buy order for an inverse ETF in a customer’s account. Ameriprise’s compliance department informed Renard that Ameriprise did not allow its representatives to solicit nontraditional ETF purchases. Nonetheless, according to FINRA, Renard continued to solicit customers to purchase nontraditional ETFs.